Tag: Turkish economy

Why The Worst Is Still Ahead For Turkey’s Bubble Economy

The explosive rise of Turkey’s economy in the past decade is one of the most fascinating growth stories of all time. Since 2002, Turkey’s economy nearly quadrupled in size on the back of an epic boom in consumption and construction that led to the building of countless malls, skyscrapers, and ambitious infrastructure projects. Like many emerging economies in the past decade, Turkey’s economy continued to grow virtually unabated through the Global Financial Crisis, while most Western economies stagnated.

Unfortunately, like most emerging market nations, Turkey’s economic boom has devolved into a dangerous bubble that is similar to the bubbles that caused the downfall of Western economies just six years ago. Though Turkey has received significant attention after its currency and financial markets fell sharply in the past year, there is still very little awareness of the country’s economic bubble itself and its frightening implications.

more : http://www.forbes.com/sites/jessecolombo/2014/03/05/why-the-worst-is-still-ahead-for-turkeys-bubble-economy/

August 23, 2014
Turkey Stocks are Biggest Loser as Erdogan Crisis Persists

The Turkish national flag sits atop of a traders work station as he monitors financial information while working on the floor of the Borsa Istanbul, the stock exchange in Istanbul. Photographer: Kerem Uzel/Bloomberg

The mounting power struggle between Turkish Prime Minister Recep Tayyip Erdogan and the judiciary is turning the country’s stock market into the world’s worst performer and driving the currency to unprecedented lows.

The Borsa Istanbul 100 Index (XU100) has slumped 15 percent in dollar terms this month, the most among more than 90 benchmark gauges tracked by Bloomberg. The measure extended this year’s slide to 27 percent, as a corruption probe embroiled Erdogan’s cabinet and led to three ministerial resignations. Turkey’s lira has sunk 4.9 percent in December, second only to Argentina’s peso among emerging-market currencies, and traded at a record low of 2.1764 per dollar last week.

The crisis threatens to undo the economic gains Erdogan made in orchestrating a decade of almost uninterrupted growth that earned Turkey its first investment-grade credit ratings since the early 1990s. The investigation, which Erdogan labeled a coup attempt, is deepening the conflict between the government and followers of U.S.-based Islamic cleric Fethullah Gulen, who are influential in the judiciary and police force.

VIDEO: Protesters Call for Turkey’s Erdogan to Resign

“This is going to make Turkey stick out like a sore thumb,” Arnab Das, founder of London-based consultancy Das Capital, said in a telephone interview on Dec. 26. “The risks in Turkey are becoming more manifest.”

Ihlas Holding (IHLAS) AS, an Istanbul-based holding company of construction, health care and education businesses, fell 66 percent this year, the worst performer among the 100 members in the Borsa index. Anel Elektrik Proje Taahhut ve Ticaret AS, which offers electromechanical contracting services, tumbled 53 percent.

Bond Selloff

Investors are also dumping Turkish bonds at the fastest pace in two years, sending yields on benchmark two-year notes to a 23-month high of 10.17 percent Dec. 27, according to data compiled by Bloomberg. Foreigners sold a net $1.9 billion in the two weeks through Dec. 20, cutting holdings to a three-month low of $54 billion, from $72 billion in May, central bank data show.

“If interest rates were to remain elevated for a long period and if the currency were to continue weakening, then it definitely would start to impinge on economic performance,” Julian Rimmer, a broker at London-based CF Global Trading U.K. Ltd., said in a telephone interview on Dec. 27.

The investigation has become the battleground in a struggle for control of the majority Muslim country between Erdogan and Gulen. The cleric broke with the prime minister this year, ending a partnership that had helped sustain the single-party government since 2002.

BlackRock Buys

For some investors, it has been an opportunity to purchase shares cheaply. BlackRock Inc., the world’s biggest money manager, said Dec. 23 it added to its Turkish holdings, especially financial stocks, in a bet that the worst of the turmoil may have passed.

The crisis began Dec. 17 with arrest of the sons of three cabinet ministers as well as the chief executive officer of state-run Turkiye Halk Bankasi AS (HALKB) amid probes into bribery, money laundering, gold smuggling and corruption in government tenders. Erdogan said in a Dec. 27 televised speech that it was an attempt to derail the government. Earlier that day, a top judicial body blocked his order requiring the government to be notified of investigations, a ruling he called unconstitutional.

“What started as a local power struggle within the ruling religious political elite would appear to have become an issue broad enough to not only destabilize Turkey’s financial markets but potentially spill over into the wider arena of emerging market fixed-income and currency markets,” Michael Shaoul, chief executive officer of Marketfield Asset Management LLC, wrote in a note to clients on Dec. 27.

Share Gains

Until this year, Turkey, the Middle East’s only member of the North Atlantic Treaty Organization, was an investor favorite as Erdogan fought off pressure from secularist generals, reined in government spending and sold state-owned companies.

The benchmark stock index jumped 505 percent in dollar terms between March 2003, when Erdogan took office, and the end of 2012, compared with the 275 percent gain in the MSCI Emerging Market Index. Dollar-denominated bonds returned 207 percent, outpacing the 173 percent increase in JPMorgan Chase & Co.’s EMBIG Diversified index for emerging markets.

Investors started to pull back in May when the Federal Reserve signaled it was preparing to withdraw the U.S. monetary stimulus that had helped fuel demand for developing-nation assets over the past five years. That month, anti-government protests over a planned development in Istanbul spread across the country in the worst unrest during Erdogan’s reign.

“The underlying issue is that Erdogan is becoming more authoritarian and less focused on the institutions in Turkey,” Das said. “That’s ultimately got to be a bad thing.”

via Turkey Stocks are Biggest Loser as Erdogan Crisis Persists (3) – Businessweek.

December 31, 2013
Turkey first of Fed Taper victims as political crisis scares investors

Lira tumbles as Turkey goes from star performer to ‘sick man’ of the emerging market block

Demonstrators protest against Turkey’s ruling Ak Party (AKP) and demand the resignation of Prime Minister Tayyip Erdogan in Ankara after a high-level corruption scandal. The banner reads “The government has to resign” Photo: Reuters

By Ambrose Evans-Pritchard

The Turkish lira has tumbled to a record low amid a deepening political crisis in Ankara, the first emerging market domino to wobble as the US Federal Reserve starts to wind down global dollar stimulus.

The currency has weakened by 6pc against the euro over the last two days, culminating a 25pc fall this year. Foreign funds have cut holdings of Turkish debt by a quarter since the May.

Turkey has gone from star performer to ‘sick man’ of the emerging market block as the Fed begins to taper bond purchases, a move that threatens to set off a further rotation of funds back into US dollar assets.

^{Turkey is the most vulnerable of the emerging market nexus}

An estimated $4 trillion of foreign capital has flowed into the developed world since 2009, much of it ‘hot money’ chasing asset bubbles. Regulators are nervously eyeing yields on 10-year Treasuries as they touch 3pc, levels that could set off a scramble for dollars.

Pressure has been building this month on Indonesia, one of the “Fragile Five” (along with India, Brazil, South Africa, and Turkey) with big current account deficits. The rupiah fell to the lowest since 2008 yesterday, down 22pc this year.

Even the much lauded Philippines has been hit in recent days on fears of a broad- based “taper tantrum”, akin to events in May last year when tougher talk from Washington set off worldwide jitters.

Mark Carney, Governor of the Bank of England, warned before Christmas that the epicentre of global stress has shifted from West to East. “The greatest risk is the parallel banking sector in the big developing countries,” he said.

Emerging markets have been sputtering since 2011, with Brazil and Russia flirting with recession this year. Some have hit the buffers as the commodity supercycle fades or because they have exhausted the low hanging from fruit from their catch-up growth models.

The MSCI Emerging Markets index is down 9pc this year, in stark contrast to the 28pc boom on Wall Street’s S&P 500. Investors appear deeply divided over whether this is a “contrarian” chance to buy cheap.

The global bond giant Pimco says Fed tapering is already priced into markets, while countries have ample foreign reserves to counter shocks, unlike earlier Fed tightening episodes in the 1980s and 1990s.

Yet Goldman Sachs – once the cheerleader of the ‘BRICS’ – said the shift in global economic power had been over-dramatised and advised clients to trim emerging market holdings from 9pc to 6pc of their portfolio until the dust settles.

“The returns were not as attractive as expected, the economic growth rates were not as sustainable as imagined, and the countries were not as stable as believed,” it said.

Berkeley professor Barry Eichengreen said the coming turn in the Fed’s liquidity cycle remains a threat, with no guarantee that those with stronger fundamentals will be spared. “A revival of last summer’s emerging economy turmoil is a real concern,” he said.

Turkey has become the immediate flash point as the country’s political storm turns into a constitutional crisis. Recep Tayyip Erdogan, Turkey’s Islamist premier, fired half his cabinet on Thursday to tighten his grip.

A power struggle between rival forces of Turkey’s Islamist movement is threatening the rule of law itself. Istanbul’s prosecutor Muammer Akas has accused the government of ignoring court orders and blocking a probe into illegal tenders linked to Mr Erdogan’s circle.

Mr Erdogan has sought to bolster his popularity before elections next year with populist measures, while the central bank has burned through 15pc of Turkey’s foreign reserves to prop up the lira rather than tighten policy.

William Jackson from Capital Economics said the country is the most vulnerable of the emerging market nexus. Its external deficit – much of it owed by banks – is “funded almost entirely by short-term, and potentially volatile, portfolio inflows”.

Mr Jackson said private sector credit has risen by 10 percentage points of GDP over the last year, three times the safe speed limit. “Growth in Turkey is increasingly unsustainable,” he said.

The International Monetary Fund warned in October that Turkey must rein in spending to stop overheating and should abandon hopes for growth of 4pc to 5pc a year. “Foreign exchange rate interventions cannot substitute for the right monetary stance,” it said.

“The market reappraisal of advanced economies’ monetary policies has exposed Turkey’s main vulnerability — its external imbalance. A weakening or a reversal of capital flows present a major challenge,” it said.

For the last decade Mr Erdogan has promoted a form of “Muslim democracy” akin Christian democracy in Europe, but the Islamist character is becoming stronger as the ruling party dismantles the secular state dating back to Kemal Attaturk.

Civil rights abuses have become a serious worry. More reporters are in prison in Turkey than in any other country in the world, according to Committee to Protect Journalists.

Amnesty International accused the government of human rights violations on a “huge scale” when it crushed this summer’s Gezi Park protests with live ammunition. The clash left 8,000 injured and six dead, laying bare the deep divisions in Turkish society.

All six who died were Shia-linked Muslims, either Alevis or Allowites. While the protests were widely depicted in the West as a battle between Western-leaning students and Islamic conservatives, the deeper rift was between ruling Sunnis and large Shia minorities.

These fault lines were mostly covered over during Attaturk’s secular era. They have come to the surface as Mr Erdogan pushes his religious agenda further.

Turkey’s role in Syria’s civil war supporting Sunni rebels has become a fresh catalyst. Mid-East experts are increasingly worried that Syria’s bitter internal conflict is setting off a parallel sectarian struggle in Turkey.

December 29, 2013
Can Turkey become a major economic, political and financial player again?-Analysis

Turkey’s strategic geographical position, at the crossroads of eastern and western cultures, historically guaranteed its political importance on the Old World stage. Now, with its stable economical growth and a young, well-educated and highly skilled workforce, Turkey is once again rising up to become a major economic, political and financial force in the new global economy.

Turkey has been investing heavily in the development of its infrastructure, with several large projects currently underway. These include the $11bn construction of the Istanbul-Izmir motorway, the $25bn investment in the Akkuyu Nuclear Power Plant by Russia’s Rosatom and the $15bn investment in the new Istanbul Airport, which will be the world’s largest airport with an annual capacity of 150m passengers. Other major construction projects that have commenced include a high-speed rail link for Istanbul to Anmkara and a third bridge over the Bosphorus, all of which will coincide with Turkey’s bid for the 2020 Olympics.

While numerous US and European banks collapsed following the global financial and Eurozone crises, Turkey’s banking sector has been performing relatively robustly on the international stage. Turkish central bank data has revealed that portfolio inflows last year rose 60% to $35bn, with commentators describing Turkey as one of the most interesting emerging markets in the region with a diversified range of investment products. Last November, Fitch Ratings gave Turkey its first investment grade credit rating in almost 20 years, which endorses the country’s economic transformation and has been one of the main catalysts for the significant rise in demand for Turkish assets this year.

Outside interest

With its deepening capital markets and robust growth, Turkey has caught the interest of the international investment community, particularly from the Gulf region, with investors being drawn to Turkey’s widening range of investment products, from a debut sovereign Sukuk bond issue last September to foreign currency-denominated Eurobonds from both banks and corporates.

Inward and outward foreign direct investments of all sizes are flooding the market. At the larger end of the scale, the larger investments typically come from new or emerging jurisdictions. Russia is becoming one of the largest trading partners in Turkey, and good and improved relations between the two countries has resulted in Turkey becoming the largest foreign investor in Russia. While Russia’s Rosatom is building the Akkuyu nuclear power plant, Sberbank has acquired both the domestic Turkish Denizbank for over $4bn and the consumer banking division of Citibank in Turkey.

Outside the financial services sector, a significant proportion of the Turkish pharmaceutical manufacturing industry has been acquired by global drugmakers. These companies, mainly Swiss, German, Japanese and US based, continue to compete for larger shares of Turkey’s fast growing pharmaceutical market, which expanded from $3bn in 2003 to $13bn in 2012.

There have been similar trends in many other sectors, including insurance and healthcare, as the economy expands and a fast growing population increases purchasing power, consuming both domestic and imported production.

Turkey’s exports are on a continuous increase, with the government taking critical steps to control the economic growth and current account deficit. The government has committed to increase its exports, currently at $150bn, to over $500bn by Turkey’s centennial celebrations in 2023. Deputy Prime Minister Ali Babacan recently said that it would be possible to reach a GDP per capita of $25,000, provided that both judicial and educational reforms are carried out to liberalise the economy.

As part of its stated ambition to establish Istanbul as a major international financial centre appropriate to the country’s standing in the region, the government has set out its plans and construction for the premises of an international financial centre (IFC) have already commenced. The intention is for the IFC to improve the Turkish economy by attracting funds, allowing Turkish businesses to obtain easier finance and for the domestic insurance sector to become closer to international financial markets.

As part of its commitment to legislative reform and to improve the climate in which to do business in Turkey, the cabinet has sent legislation to parliament on the formation of the Istanbul Arbitration Center (IAC). Turkey is aiming for the IAC to become a major dispute resolution centre for investors particularly in the IFC and a prime centre for the resolution of commercial disputes in the region. At a conference on the proposed IAC, convened in November 2012, the various requirements for the development of a successful arbitration centre were discussed by a record number of 380 delegates.

As the organisers of the conference, Mehmet Gn & Partners believe that establishing the IAC alone is not enough – it must be supported by the creation of special courts and appeal chambers equipped with the state-of-the-art disclosure processes, so that the complex disputes that IFC participants may encounter can be swiftly and efficiently resolved. We will continue to work to facilitate the establishment and international recognition of the IAC, of specialised IFC courts and the adoption of full and frank disclosure in Turkish civil procedures.

The deputy prime minister believes that Istanbul can fill the gap between the financial centres of London, Frankfurt and Dubai, and become a regional powerhouse. There is no doubt that following the Arab Spring, Istanbul benefited from its position as a strong stable economy outside the EU and its “safe haven” status for investors in the East Mediterranean, North African and Central Asian region. In Egypt, Cairo has already lost its importance to Istanbul as was shown when the Nikkei Index of Japan relocated its Middle East offices to Istanbul. With an almost bankrupt Greece and Cyprus, and an unstable Egypt, Turkey is paving the way to become the region’s major financial and commercial centre.

bne/Mehmet Gn of Mehmet Gn & Partners

April 27, 2013
Turkey Submits Bill Offering Amnesty for Repatriation of Assets

Turkey’s government submitted a draft bill to parliament offering an amnesty for repatriation of assets held by Turks abroad.

The bill proposes a reduced tax rate of 2 percent, with no questions to be asked about how the money was earned and no penalties to be applied, according to the draft submitted to the parliament yesterday.

Turkish citizens and companies have $130 billion of portfolio investments abroad, including more than $50 billion in U.S. Treasuries, Milliyet newspaper reported on April 17, citing Deputy Prime Minister Ali Babacan. The Turkish private sector invested a record $4.5 billion abroad in 2012, Babacan said, according to Milliyet.

Turkish businessmen and companies can declare money, gold, securities and other capital markets instruments held abroad to tax offices by July 31 and pay a 2 percent tax on them within three months of the declaration, the draft says. The holdings can then be repatriated in installments.

Profits earned by overseas units of Turkish companies and proceeds from sales of unit stakes outside Turkey before Oct. 31 will also be exempt from corporate and income tax should the funds be repatriated by the end of the year for investment purposes, the draft says. The Cabinet may extend repatriation periods and a higher rate would be charged should the owners of the assets fail to pay the 2 percent tax after declaring them.

Babacan said the move could be more effective than a previous amnesty announced in late 2008 and in force until the end of 2009, when there was a global economic crisis, according to Milliyet.

Turkish citizens and companies declared 48 billion liras under that law, which covered assets both abroad and in Turkey. A total of 27 billion liras was repatriated while 5 billion liras in domestically held assets also returned to the financial system, Osman Arioglu, former head of the tax authority, said today. The new legislation is restricted to assets held abroad.

via Turkey Submits Bill Offering Amnesty for Repatriation of Assets – Businessweek.

April 26, 2013
[chart] Turkey GDP: quick, quick, slow

by Rob Minto

So much for the T in Mist: Turkish GDP for the fourth quarter of 2012 was just 1.4 per cent – lower than consensus forecast and the lowest rate since 2009.

Overall it made for 2.2 per cent growth for the full year – a marked slowdown from the previous two years, when 8 plus per cent was the norm. [Chart after the break.]

Here’s the chart:

Source: Bloomberg

As Daniel Dombey wrote in the FT:

Turkey’s economic slowdown has been largely engineered by the financial authorities, who raised interest rates last year amid fears of economic overheating. The figures come at a time when economists say signs are mixed over the future strength of Turkey’s economy.

via [chart] Turkey GDP: quick, quick, slow | beyondbrics.

April 2, 2013